The Tenant Fees Act 2019 ("the Act") will introduce fundamental and extensive changes to the fees which landlords or letting agents can seek to recover from the tenant of an Assured Shorthold Tenancy ("AST") in England from 1 June 2019. In addition, the Act restricts a landlord's ability to serve a valid notice under section 21 of the Housing Act 1988 to terminate an AST until it has returned any prohibited payment to a tenant.

When does the Act apply?

The Act will apply to all new ASTs, tenancies of student accommodation and licences to occupy private residential property in England from 1 June 2019. However, the Act will also apply to all existing ASTs from 1 June 2020. For tenancies, which are currently within the fixed term, but will become periodic after 1 June 2019, the Act will apply from 1 June 2020. The Act does not apply to long leases nor to common law tenancies (where the rent exceeds 100,000 or is below 1,000 per annum).

The Act bans all payments from a tenant unless they are expressly permitted by the Act. Where a tenancy agreement contains a clause requiring a tenant to make a prohibited payment, the relevant provision will not be binding, but all other provisions of the tenancy agreement will remain effective.

Permitted payments

  •  Rent;
  •  A refundable tenancy deposit (capped);
  •  A refundable holding deposit (capped);
  •  Certain payments on assignment/variation of the tenancy (capped);
  •  Payments associated with early termination by the tenant;
  •  Payments in respect of utilities, communication services and Council tax;
  •  Fees in the event of tenant default (capped); and
  •  Damages for breach of the tenancy agreement.

Rent

The rent payments must be split equally across the tenancy. Landlords may include a notional element for the additional costs which it may now be required to bear within the rent, but it cannot artificially increase the rent in the first month of the tenancy before the rent reverts to the usual lower amount for subsequent months. The rent must be fair and in line with other properties in the area.

Tenancy Deposit

A landlord can continue to require the tenant to pay a refundable tenancy deposit to be protected in an approved tenancy deposit scheme, but the amount is capped at 5 weeks' rent, if the rent is less than 50,000 per year. Where the rent exceeds 50,000, the cap is 6 weeks' rent.

Holding Deposit

A holding deposit may be taken of up to 1 week's rent but the holding deposit must be refunded to the tenant except if the tenant withdraws, fails a right to rent check or provides false or misleading information (e.g. inflates their income but not if they made a spelling mistake on the application form). The holding deposit may be held for 14 days (or longer if agreed between the parties) and must be repaid to the tenant within 7 days of the tenancy being entered into or the landlord withdrawing. The holding deposit must be calculated by reference to the total rent for the property and clear information must be given including why it is being requested and the circumstances in which it may be used.

Default Fees

These are chargeable if the tenant fails to perform an obligation in the tenancy. The Act limits default fees to the loss of a key or other security device to the property or a failure to make a payment of rent within 14 days of the due date. Both of these events may trigger a permitted payment as follows:-

1. A charge can be made for lost keys but it must reflect the landlord's reasonable costs and details of the costs must be given to the tenant in writing.

2. The tenant must be given a grace period of 14 days to pay rent but once that period has expired, interest may be charged from the due date until payment. The interest rate must not exceed 3% above the base rate of the Bank of England.

A landlord may claim damages for breach of a term of the tenancy agreement which is a permitted payment provided sufficient supporting evidence is supplied.

Payments for assignment/variation of a tenancy or early termination

Any fees for amending a tenancy agreement must be limited to 50, above which the fee is a prohibited payment. Fees for early termination by a tenant are limited to the actual loss (if any) suffered by the landlord.

Enforcement

Trading standards authorities will enforce any breaches of the Act. The Secretary of State has the power to arrange for a Lead Enforcement Authority to oversee the operation of the Act but there is none in existence at present.

A breach of the Act will be a civil offence with a financial penalty of 5,000 but if there are further breaches, within 5 years of a previous offence, a landlord may be fined up to 30,000, face criminal prosecution or be subject to a banning order preventing it from letting property for a year.

Consequences of a prohibited payment

A tenant is entitled to reimbursement of any prohibited payment with interest and if payment is not returned, a tenant can apply to the First-Tier Tribunal (Property Chamber) to recover the sums from the landlord/letting agent.

Landlords will also be restricted from serving a Section 21 Notice to terminate an AST until they have repaid any prohibited payments to the tenant.

Duties of letting agents to publicise fees

Letting agents are required by amendments made to The Consumer Rights Act 2015 to publicise their fees on their website. They are also required to become a member of a Client Money Protection Scheme and give details of the name of the scheme.

Examples of fees

The following are now prohibited payments which landlords/letting agents cannot charge tenants:-

  • contract fees;
  •  reference fees;
  •  credit check fees;
  •  inventory fees; and
  •  requiring a tenant to engage professional cleaners at the end of the tenancy.

Landlords/letting agents may include a term in the tenancy that the property is cleaned to a professional standard but not require the tenant to use professional cleaners.

Action points

It is vital for landlords/letting agents to keep accurate records to evidence the grant of the tenancy agreement but also receipts and invoices about payments by tenants and correspondence (including emails, telephone notes and texts) with tenants so that sufficient evidence can be produced to oppose any false allegation that a prohibited payment has been made.

Landlords/letting agents will also need to review their tenancy agreements for new tenancies and renewal tenancies granted after 1 June 2019.